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Friday, April 22, 2011

The Need to Increase the Debt Ceiling

Washington is currently absorbed in the Kabuki theater of raising the debt ceiling. As Derek Thompson at the Atlantic notes, for many Washington players, this debate over raising the ceiling is a mere game. Nearly everyone---Republicans and Democrats---believes that the debt ceiling must be raised. Every once and a while, the minority party shows its fiscal "prudence" in voting against raising the ceiling, while the majority party has to lumber forward and vote "for the future." The very same Democrats (such as Barack Obama) who now say that raising the ceiling is imperative were, but a few years ago, voting against raising the ceiling; Republicans now talking about the craziness of raising the debt ceiling were very happy indeed to vote for a raised ceiling when they were a Congressional majority under Bush.

Congressional Republicans' whole argument against raising the debt ceiling is about political positioning. Republicans are trying to extract more fiscal concessions from Obama in terms of budget cuts and are using the debt ceiling as a way of getting those.

While threats to not raise the debt ceiling might be effective talking points or bargaining tools, I think we should be far less impressed by their fiscal substance. Moreover, we should not confuse voting for raising the debt ceiling with conservatives "selling out": any Republican who votes in favor of raising the debt ceiling should not be viewed as an apostate from fiscal conservatism because of that vote.

There are many reasons why this is the case. Perhaps foremost among them is the fact that not raising the debt ceiling would be exceedingly traumatic for our economy and our nation's fiscal health. Not raising the debt ceiling would force the federal government to spend only as much as it takes in from taxes, and, right now, over 40% of the federal budget is deficit spending. Veronique de Rugy and Jason Fichtner offer the following numbers:

The most recent Office of Management and Budget data shows federal revenues will reach $2.17 trillion this fiscal year. Interest payments on the nation’s debt are estimated to be $205 billion this year, or about 10 percent of revenues. Taking that payment off the top, as Mr. Toomey’s plan would, leaves $1.9 trillion for Congress to spend. That’s enough to pay for Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion), with $395 billion left for other programs.

That remaining $395 billion is not enough to fund fully the Department of Defense, let alone other government programs such as unemployment benefits, highway projects, education programs, and so forth. That massive drop in federal spending would very likely push the economy into a deeper recession, which would further eat into tax receipts and bring us no closer to fiscal health. While it's true that Congress has delayed raising the debt ceiling a few times in the past (in 1985, 1995, and 2002), deficit spending is now such a huge portion of the federal budget that those past examples may not be that instructive.

Meanwhile, every budget plan under serious consideration at the moment demands more deficit spending. Even the Ryan budget, which so many self-anointed fiscal hawks have embraced, requires trillions more in deficit spending. House Republican lined up almost uniformly behind the Ryan budget, and so they have already become de facto supporters of more debt for the federal government.

At a certain point, it becomes an honorable realism to acknowledge history. Every presidential administration since the end of World War II has added to the federal debt in terms of the sheer number of dollars. Budget plans that Republicans have embraced demand much, much more deficit spending at the moment, even if they will (supposedly) lead to less deficit spending in the future.

Even figures held in great esteem by fiscal hawks such as Pat Toomey are ultimately willing to raise the debt ceiling. The opening line in Senator Toomey's recent op-ed makes this plain:

As we have been approaching the $14.3 trillion statutory limit to federal borrowing, I and many of my colleagues have insisted on real spending reforms now as part of any agreement to allow still more government borrowing...

This statement takes for granted that there could be an agreement to allow more government borrowing.

Fiscal conservatives are hoping to trade their votes for raising the deficit ceiling for further budget cuts. That is a reasonable expectation.

What would be unreasonable would be for any supporter of the Ryan budget to tar those who ultimately vote for raising the debt ceiling as traitors to the cause of fiscal solvency. If conservatives hope turn our nation's fiscal situation around, they would do well to recognize the difference between a negotiating tactic and policy substance.